The Current State and Prospects of the Indonesian Coal Market

Background and Significance of the Indonesian Coal Market 

According to the "Market Status and Feasibility Study Report on the Indonesian Coal Machinery Industry in 2024" released by the New Horizon Industry Research Center, Indonesia is rich in coal resources, with shallow burial and thick coal seams, indicating significant potential for resource extraction. According to data from the Indonesian Ministry of Energy and Mineral Resources, as of 2022, Indonesia's confirmed coal reserves amount to 19.3 billion tons, with 5.2 billion tons identified as commercially viable reserves. These reserves are primarily located in the central and southern regions of Sumatra Island, as well as the eastern and southern regions of Kalimantan Island. In 2022, Indonesia's coal production reached 685 million tons, and in 2023, it experienced a remarkable growth rate of 13.1%, reaching 775 million tons.

The Indonesian coal industry has demonstrated resilience, bouncing back from the adverse impacts of the COVID-19 pandemic with the support of surging global coal prices. The pandemic initially disrupted various industries worldwide, including coal, due to lockdowns, movement restrictions, and industrial closures, resulting in a slump in global coal demand. However, the industry swiftly recovered as demand rebounded, propelling coal prices to unprecedented highs in 2021, largely driven by robust demand from China and Southeast Asian nations.

In 2021, Indonesia exported 433.7 million tons (Mt) of coal, constituting approximately 71% of the country's total output of 610 Mt for the year. This export volume marked a slight increase from the 2020 figure of 406.8 Mt. In terms of value (FOB), coal exports generated $31.5 billion in 2021, nearly doubling the $16.4 billion recorded in 2020. Meanwhile, domestic coal sales decreased to about 133 Mt in 2021, down from 155 Mt in 2020, according to the Ministry of Energy and Mineral Resources' Directorate General of Mineral and Coal (MINERBA).

The coal industry drew international attention during the United Nations Climate Change's COP26 in November 2021. While at least 23 countries, including Indonesia, initially committed to phasing out coal, discussions faced contention as China and India resisted signing up for a "phase-out," insisting on the term "phase-down."

Concerns over coal shortages led the Indonesian government to impose a one-month ban on coal exports starting January 1, 2022. This move aimed to ensure sufficient coal supply for domestic power plants, as miners had prioritized exporting coal amid soaring global prices, neglecting their domestic market obligations (DMO). The export ban triggered a spike in global coal prices, causing apprehension among major Indonesian coal customers such as South Korea, Japan, and China.

The Russia-Ukraine war that began in February 2022 altered dynamics in global energy markets, prompting some European Union countries to reconsider coal as a less-expensive alternative or delay their coal phase-out plans. In April, the European Commission agreed to impose a complete ban on all forms of Russian coal, effective from August 10. This geopolitical shift led to the reconsideration of previously decommissioned coal-fired power plants in Germany and Italy for a potential second life.

Indonesia's Position in Global Coal Production and Exports

According to news released from Jakarta on January 15, 2024, by CNBC Indonesia, the Indonesian Ministry of Energy and Mineral Resources (ESDM) disclosed that Indonesia's coal production reached 775 million tons in 2023, marking a 13% increase from the actual production of 687 million tons in 2022. This also signifies the highest coal production in Indonesia's history.

Arifin Tasrif, the Minister of Energy and Mineral Resources, stated that the coal production in 2023 exceeded the government's target of 695 million tons. Out of the achieved production of 775 million tons, 213 million tons were consumed domestically, while 518 million tons were exported.

In a press conference held in Jakarta on Monday, Arifin stated, "Our coal production in 2023 has reached 775 million tons, meeting the domestic demand of 213 million tons and exporting 518 million tons."

He mentioned that domestic coal consumption demonstrated a continuous upward trend, increasing from 177 million tons in 2022 to 213 million tons in 2023. Similarly, coal exports also increased, expected to rise from 465 million tons in 2022 to 518 million tons in 2023."We can see with our own eyes that our coal exports are increasing, primarily based on the growing demand," he said.

Arifin also mentioned that the coal production target for 2024 is 710 million tons, with a Domestic Market Obligation (DMO) of 181.28 million tons. He stated, "Domestic coal consumption is increasing every year and is a continuing trend. This includes the growth in electricity demand and the ongoing construction of new coal-fired power plants, with an additional 35 gigawatts (GW) of PLTU currently under construction."

On November 9, 2023, it was reported that Indonesia achieved a new record in coal exports, surpassing 413 million tons in the first 10 months of 2023, thereby solidifying its position as the world's largest exporter of thermal coal.

Indonesia's coal export volume increased by 11.5% compared to the same period in 2022, nearly twice the global growth rate in total coal exports. Despite major economies worldwide striving to transition away from fossil fuels in their energy systems, the global coal export volume in 2023 is expected to reach a new high.

Data from Kpler reveals that Indonesia claimed more than 50% of the global thermal coal export market share from January to October this year, reaching 50.2%. This indicates that the country successfully seized a portion of the market share from its competitors.

In the first 10 months of this year, Australia, the world's second-largest coal exporter, saw its market share decrease from 20% in the same period of 2022 to 19.4%. The third-largest exporter, Russia, also experienced a decline from 12.3% to 11%. Indonesia took away the export shares of the fourth and fifth-ranked exporters, South Africa and Colombia. The market share of the sixth-largest exporter, the United States, slightly increased.

China (including Hong Kong) emerged as the largest destination market for Indonesia's coal exports. In the first 10 months of this year, China imported 182.5 million tons of coal from Indonesia, a 33% increase compared to the same period in 2022, constituting 44.2% of Indonesia's total coal exports.

India is the second-largest buyer of Indonesia's coal exports, accounting for approximately 20% of the total (82 million tons in the first 10 months). The Philippines ranks as Indonesia's third-largest export market, holding a 7.2% share (30 million tons).

Japan, South Korea, and Taiwan, China, are also major buyers of Indonesian coal. Similar to mainland China, it is expected that in the last few months of this year, with the seasonal increase in heating and power demand in these countries and regions, public utility companies will replenish coal stocks, leading to an increase in coal imports.

The key to the growth in Indonesia's coal export market share lies in the fact that, compared to higher-grade coal sold by competitors like Australia, Indonesian coal has lower calorific value and relatively cheaper prices. According to data from LSEG, the average price of Indonesian benchmark-grade 4200 kcal/kg thermal coal is around $65 per ton as of October this year. In contrast, the average price of 6200 kcal/kg thermal coal shipped from Newcastle Port, Australia, is $184 per ton.

According to the Shanghai Shipping Exchange, the current freight rate for coal exports from Indonesia to China is approximately $8 to $10 per ton, while the rate from Australia to China is $14 to $15 per ton.

In terms of shipping time, the journey from Indonesia to major coal import centers such as China and India is roughly half that of Australia, giving Indonesia an unparalleled advantage in spot trading when importers need to urgently purchase coal. The combination of close geographical proximity and lower prices seems poised to continue expanding Indonesia's coal exports in the remaining months of this year, especially as coal consumption in the northern hemisphere approaches its peak.

Recent price drops in Australian coal have piqued the interest of utility companies in procuring high-calorific-value coal from Australia, as they aim to maximize power generation while controlling emissions. For power producers still primarily focused on generating electricity at the lowest possible cost, purchasing Indonesian coal remains their preferred choice.

This suggests that Indonesia's coal exports for the entire year of 2024 are expected to break previous annual export records, reaching unprecedented highs in history.

Market Trends and Challenges

As Indonesia is one of the world's largest coal-exporting nations, its coal market is significantly influenced by global demand and price fluctuations. Any growth or decline in demand may directly impact Indonesia's coal exports and industry. Additionally, with increasing global attention on climate change and environmental sustainability, Indonesia may face stricter environmental regulations in coal mining and usage, potentially driving the industry towards cleaner and more sustainable energy directions. Apart from the export market, Indonesia's continuously growing economy contributes to the increasing demand for coal in power generation, industrial, and other sectors. As Indonesia also grapples with electricity shortages, the country's coal, known for its low ash and low sulfur content, is well-suited for power plants. Hence, the Indonesian government is expected to significantly increase installed capacity in the future, with coal-fired electricity accounting for 50% to 60% of the newly added capacity.

The increase in coal demand will also lead to higher production, making technological innovations in coal mining, processing, and combustion potential challenges in the future. The adoption of more efficient and environmentally friendly coal mining and utilization technologies could contribute to improved production efficiency and reduced environmental impact. However, coal extraction and combustion generate significant amounts of carbon dioxide and other environmental pollutants. Faced with global concerns about climate change, Indonesia may encounter environmental protection pressures from both international and domestic sources.

Furthermore, the fluctuation of coal prices has a significant impact on Indonesia's economy and export revenue. The volatility in the global market can lead to price instability, affecting Indonesia's coal industry. Policy uncertainties and changes pose risks to the coal industry, as potential new environmental regulations and energy policies may have profound effects on industry structure and operations. The increasing global demand for renewable and clean energy may pose a threat to the traditional coal industry on a global scale. Indonesia may need to adapt to changes in the energy market and consider transitioning to more sustainable forms of energy.

International Market Demand and Potential Opportunities for Indonesian Coal

In terms of demand:

a. Asian countries, especially China, India, Japan, and South Korea, are the primary importers of Indonesian coal. These nations exhibit a high demand for coal, primarily used for electricity generation and industrial purposes.

b. The continually growing global demand for energy, particularly in developing countries, positions coal-dependent nations like Indonesia as pivotal players in meeting this escalating demand for a primary energy resource.

Potential Opportunities:

a. Renewable Energy Transition: With increasing global attention on climate change and sustainability, some countries are gradually shifting from traditional coal to renewable energy sources. However, this also presents an opportunity for Indonesia to meet market demand by offering cleaner and more environmentally friendly coal for those markets that still rely on coal.

b. High-Value Added Products: Indonesia can cater to the global market's demand for more technologically advanced and environmentally friendly coal by providing high-value-added coal products, such as high-quality metallurgical coal, coal-derived products, or coal derivatives.

c. International Cooperation and Technology Exchange: Through collaboration with other coal-exporting and importing countries, Indonesia can gain access to the latest coal technologies and management practices. This helps improve production efficiency, reduce environmental impact, and enhance international competitiveness.

d.Infrastructure Development Needs: Some countries, particularly emerging markets, face demands for infrastructure development, including in areas such as electricity, industry, and transportation. Indonesia can explore new opportunities in these markets by supporting such projects through coal offerings.

Summary

The current state of the Indonesian coal market places it at the forefront of global coal trade, making significant contributions to its economy through reliance on exports. However, with increasing global focus on the environment and sustainable development, the country's coal industry faces substantial challenges. To address this shift, the Indonesian coal sector is poised to move towards more environmentally friendly and innovative directions. Diversifying products will be a key factor in enhancing competitiveness in the future. By producing high-value-added coal products such as high-quality metallurgical coal and coal-derived items, Indonesia can not only meet global market demands but also elevate revenue levels. Meanwhile, strengthening domestic energy infrastructure will contribute to improving the efficiency of coal transportation and usage, meeting the continuously growing domestic energy demand. Embracing eco-friendly technologies is a necessary step to ensure industry sustainability. Investments in clean mining and carbon capture technologies can mitigate environmental impacts while enhancing the industry's image. Active participation in international cooperation is also crucial to facilitate technology exchange, market expansion, and collaborative responses to global challenges. Lastly, monitoring policy changes is a vital factor in ensuring industry stability. Formulating and enforcing clear environmental regulations, while supporting sustainable development goals, will help Indonesia maintain competitiveness in the international coal market. By investing in clean and renewable energy projects, Indonesia can better adapt to the evolving future energy market, achieving sustainable development in the coal industry. Therefore, the Indonesian coal market is poised to meet future challenges by adopting innovative, environmentally friendly, and sustainable strategies.

Reference

[1]Alexander Ginting(publisher), Robert Sihotang(Coordinator), Reiner Simanjuntak, Johannes Simbolon, Tyasno Hery, Rudi Simangunsong, Adianto P.Simamora, Rikordias D. Siahaan, Romel S., Yuda Prihatna, Muhammad Yunus, Syahf Sagita, Ipunk AF. “Indonesian Coal Book 2022/2023”. Indonesian Coal Mining Association (APBI-ICMA), July 2022.

[2]China Coal Economy Association. “Breaking Records! Indonesia Achieves Coal Production of 775 Million Tons in 2023, with Coal Exports Reaching 518 Million Tons”. January 2024. https://www.china5e.com/news/news-1164283-1.html

[3]China Coal Economy Association. “In 2023, Indonesia's coal exports are expected to reach an unprecedented historical high”. November 2023,  https://www.china5e.com/news/news-1161116-1.html

[4]www.newsijie.cn. “2024 Indonesia Coal Machinery Industry Market Status and Feasibility Study for Overseas Companies Entry Report”. January 2022.

 
Oleh Lu Lilan, Universitas Presiden